New Growth Path: response to questions by Minister of Economic Development

Economic Development

08 November 2016
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Minister responded in detail to questions asked by members at the 25 October meeting. His responses highlighted that in unlocking investment it is important that the country focus on the political economy, market opportunity, access to infrastructure, regulatory efficiency, skills availability, and competitiveness and inclusion. The Minister noted that in an investment environment where there are concerns about corruption and the broader political environment, there is an effect, because investors are concerned about that environment, and this must be resolved as part of unlocking investment. Secondly, connected to this is the integrity and resilience of political institutions and rule of law.

The balance that the government seeks to achieve is between costs and encouraging investment, whilst recognising the importance of increasing investment in R&D. The industrial innovation incentive is essential as well as incentives to businesses for partnership with local universities that enhance R&D.

Stimulating economic growth through labour-intensive projects does not always happen such as the significant investments in essential renewable energy and the automobile assembly sectors that are not labour-intensive. The setbacks of the slump in commodity prices, especially iron ore, and the severe drought has meant that only 1.9 million jobs have been created since the NGP was adopted, which is 38% of the five million target that was set.

South Africa’s total trade with Angola amounted to R23 billion in 2015, SA is buying more than it is selling to Angola and SA’s trade deficit was R8 billion; with Nigeria it amounted to R50 billion, Equatorial Guinea it was R2 billion and with Guinea the trade deficit with SA was R1 billion. Clearly SA is buying from these countries more than it is selling.

The IDC holds 74% equity in Scaw Metals, now the IDC intends to sell part of its equity to strategic equity partners which have the capability to turnaround Scaw’s operating performance, provide sound technical expertise, improved technology, provide alternative markets, and have financial strength. Currently there are experts employed that are evaluating deals with potential partners, and potential strategic equity partners have submitted indicative offers to invest in specific divisions of Scaw.

Members asked follow up questions about where the bigger chunks of the proposed R45 billion will be spent on promoting industrialisation, economic transformation and sustainable resource management over the MTEF announced by the Minister of Finance in his MTBPS; the Department’s participation in the implementation of the Agri-Parks initiative; whether the IDC has a good return on its investments in the renewable energy projects; the future plans of the Department to build infrastructure to increase tourism in the Eastern Cape; progress in the Moloto Corridor in Mpumalanga; plans for the N2 Wild Coast route, storage technology to store electricity; and the extent the Joint Initiative on Priority Skills Acquisition (JIPSA) lessons went into the crafting of the NGP, in providing a clear plan for skills acquisition.

Meeting report

The Minister of Economic Development, Ebrahim Patel, responded to the Portfolio Committee questions posed at the 25 October meeting when he briefed them on progress in the New Growth Path implementation.

How can we unlock investment and thereby addressing higher growth and job creation?
Minister Patel replied that the Economic Development Department  (EDD) identified six key areas: political economy, market opportunity, access to infrastructure, regulatory efficiency, skills availability, and competitiveness and inclusion.

The Minister substantiated this by noting in an investment environment where there are concerns about corruption and the broader political environment, there is an effect, because investors are concerned about that environment, it must be resolved as part of unlocking investment. Secondly, connected to this is the integrity and resilience of political institutions and rule of law. When significant sums of money are being invested, the investors look at whether the courts are independent and public institutions are used for the purposes they are intended. When there are doubts in these areas, then it can potentially affect investments.

On market opportunities, domestic economic growth levels help to create new market opportunities – this is the aggregate of all efforts across public and private sectors. Investors look at whether they can sell the product, not where they can make the product, so if the growth rate slows down and there is no clear plan to recover that growth, investors will be concerned and may sit on their pile of cash. Secondly, import penetration and reclaiming the domestic market: if one sees large levels of imports of particular products, then investors look at whether they can come into the market to make that product locally and displace the import transactions thus unlocking the investment, this also applies to exports. New market applications for minerals (new markets) are crucial. For example, South Africa is the world’s biggest possessor of platinum and there is a market opportunity for what platinum can be used for.

Thirdly, competitiveness and cost structure is important, economies like SA that still have monopolies and cartels makes the competition policy very critical in opening up the market so that investors can see market opportunities. Labour pricing also players an important role, not necessarily the wage but the unit cost of labour which is the fundamental of productivity as well as transformation pricing to make policies pro growth. Energy, Fibre-optic and ICT, transport logistics and water are the biggest things that investors want access to. The quantity of skills, as well as the quality, is important and whether an engineer has the requisite capabilities to do what is required in the market. Regulatory issues, the efficiency that the public sector carries out their mandate, as well as the tax regime, are essential to the private sector for its survival. If you have a low tax regime you may attract the investors but if there are no resources (funding) available, there may be no stability and investment in infrastructure, one needs to find the balance in order to meet the basic needs to build the society.

What can be done by government to increase private sector investment in infrastructure?
The Minister said that the private sector is involved in infrastructure by being the shareholders where they take risks in particular projects and receive returns of dividends, for example, in renewable energy; where banks, foreign investors and public entities have shown an interest to put in significant investments. The second step for government is to expand the renewable energy programme, finalise more projects to unlock more investment and address some regulatory blockages. The balance that the government seeks to achieve is to reach a balance between cost and encouraging investment, and renewable energy is a complex sector because wind and solar energy is not base load (always available). However, it is important for other reasons such as clean energy, amongst others. The key aspect with equity investment is who carries the risk. Things can go wrong in a big project and in many of our projects in the past, the State carried too much risk and the result is that the cost of private sector involvement is too high. So we need to find some sort of an equation to transfer some of that risk to the private sector. The second area is the funding of infrastructure. National Treasury and government issue bonds where they give owners of capital a contract that can be traded in the market which makes it a flexible instrument but it is basically structured loans and it is used to fund infrastructure, and the private sector plays quite a key role in the bond market because some of the big parastatals are dependent on this market. National Treasury and PICC (Presidential Infrastructure Coordinating Commission) are looking at fresh initiatives to partner with long term capital investors, and this is where the private sector can come in through the bond market. This is in light of the new projects recently announced in the Medium Term Budget Policy Statement (MTBPS) such as the N2 Wild Coast Road, the Moloto Corridor Road which government is seeking to expand and the water pipeline project in Limpopo.

What can be done by government to increase private sector investment in R&D?
The Minister noted five key instruments currently deployed by government to address investment in R&D:
- A dedicated tax inventive according to Section 11D of the Income Tax Act
- Budget for technology innovation agency (TIA)
- Industrial innovation incentive that goes to business: SPII (Support Programme for Industrial Innovation)
- Incentive to a business for partnership with universities in a special programme: THRIP (Technology and human resources for industry programme); and
-  budgets of universities and via the National Research Foundation that include research grants.

The Minister stated that government is also incentivising the private sector in order to increase R&D investment. During the year under review the State set aside R11.007 billion for R&D but it does not all go to government, a small percentage (1%) goes to NGOs (Non-Governmental Organisation), 44% goes to public entities like TIA (Technology Innovation Agency), 49% goes to higher education, whilst only 6% goes to businesses / private sector. The private sector also put in R10.616 billion into R&D, and 90% of it is distributed into the private sector. Foreign investors have set aside R3.315 billion which most of it, almost equally is channelled into higher education and the private sector. Other national sources contributed only R722 million. The Minister said that this level needs to be increased, and business investment in R&D historically was significantly higher than government. Therefore, a key focus needs to take place in the area of technology in order to attract R&D investment from the private sector.

The Minister highlighted additional steps that need to be taken to increase R&D by the private sector. Firstly, it is to improve the performance tax incentive (S11D of the Income Tax Act). Secondly, to see if there is a role for competition and trade applications, as what normally happens with big acquisitions is that the big companies when they purchase smaller local firms move the skill and knowledge from that firm to the head office, wherever its head office is located. Thirdly, universities are developing a rage of partnerships with local companies to develop R&D capabilities. However, one of the biggest issues is the question of head office location. When Anglo American moved its head office to London, its relationship with local universities weakened. However, government is now engaging companies who have these partnerships with universities to ensure that moving from local to overseas locations does not affect partnerships that already exist between these companies and universities. Lastly, improved investment by SOEs (State Owned Enterprises) is needed as public companies have both the mandate and the resources to invest in the future. He used the example of renewable energy to show that an early active investment in new technology is essential.

How do we improve labour intensity of growth, what are the constraints and what are the results?
The Minister said since the adoption of the NGP, a 1% increase in real GDP (or in the economy) has led to a 1.2% increase in jobs, which means we have done better in job creation as a ratio of growth than what we have done in the past, because in the past the GDP grew much faster than the jobs. Therefore, this would be described as labour intensive growth.  The rate of growth needs to be increased and maintain this deeper labour intensity. We are getting the labour intensity right but if the level (rate) of growth is low, this means we are not getting enough jobs, and this is where the biggest challenge lies. Sectors that affect the labour intensity of the economy include renewable energy and the auto manufacturing industry. For renewable energy it is necessary to use wind, hydro and solar energy to address climate change but it is less labour intensive as opposed to a coal fire station where there are hundreds of people working day and night making sure that power is generated. However, this does not mean we cannot invest in renewable energy, as it needs to be done for future generations. The challenge is always balancing things out. The Industrial Development Corporation (IDC) invested in renewable energy when it was very capital expensive, and R15 billion was put into the sector, the IDC played a major role in paving the way for subsequent investment in renewable energy, and now there is no problem raising money. This means that the cost per job for IDC has now gone up if it invests in renewable energy, it is now expensive for the IDC to invest in this sector because the rate of return in terms of job creation for every billion rand invested yields low job creation, but at the same time, there needs to be investment in this sector to secure the future.

Another example is the auto manufacturing sector which helps to deepen domestic industrial capacity. It has big positive spin offs in the economy and helps to save forex. However, auto assembly is not labour-intensive. The assembly is putting all the pieces together through technology. The real employment is in the components themselves, the manufacturing of car parts and so on. So if you do not assemble the vehicles in the country, it makes it harder to create employment for the components because there will be no market for it. What government needs to look at is whether it is creating enough jobs in the components area, because auto assembly is extremely capital intensive.

Is there synergy with incentives and jobs being created? Are we happy with the job creation? Foreign companies and jobs?
The Minister noted that public sector support for industry has job creation at its centre. There are other important objectives to be achieved, for example, development of new technologies, impact on the environment, saving of foreign exchange, and deepening industrialisation. Work is currently being done within government to evaluate the success of incentive schemes. This work will in the next phases create an objective basis to compare job creation per million rand of incentive, so that we can start to see what we are doing in DAFF (Department of Agriculture, Fisheries and Forestry), DTI (Department of Trade and Industry) and in the provinces to see where is the greatest return on public money.  Measuring the creation of an incentive presents methodology challenges that need to be addressed, including whether the jobs are permanent or temporary and if they are temporary how temporary are they; and whether the jobs are sustainable even beyond the period of the incentive or do they require permanent incentive; is the incentive a loan or a grant that the company keeps; and do the jobs create opportunities for designated groups.

Public policy needs to have a public purpose and incentives cannot benefit close family members. Women’s participation in the economy is low, and it is in the interest of society to enhance that, so these incentives must be utilised to benefits designated groups such as poor areas, women and youth. Public policy across the world says that it is justified to spend money on designated groups. Say, for example, it costs the IDC R500 000 (on investment) per job created, and a government department gives out a R300 000 (cost per job created) incentive. Now between these two figures, it is important to ask which one is better. One may well conclude that the incentive is better. However, it may not be so, because with that R500 000 investment that the IDC invested, it will yield a return in profits, whilst the incentive is money that government will never get back (at least in monetary terms). So the true cost of that may be very low for the IDC, and these are complex calculations and that level of rigour has not been applied when looking at incentives.

The production in the auto sector declined from 2008 to 2009, and the 2008 total was re-attained in 2014 and exceeded in 2015. The auto sector jobs have increased from a low of 284 000 in 2009 to 315 000 in 2015 which is close to the 2007 peak value of 320 000. A cost-benefit analysis of the APDP (Automotive Production and Development Programme) will consider the cost per job, the level of FDI (Foreign Direct Investment) that was attracted, opportunities for jobs in component manufacturing and exports of auto-components.

Growth in the auto sector from 2006 to 2015 is as follows: pre NGP units produced in the sector were 2.5 million, and post NGP units produced were 2.8 million. Exports grew from 1 million to 1.4 million, exports components also grew from R172.2 billion to R216.2 billion; vehicle assembly employment grew from 28 100 to 31 260; whilst component employment grew from 65 000 to 82 100. This clearly shows that there was more employment and higher growth in components than in vehicle assembly. Assembly productivity has remained the same – each worker has made 89 cars. The faster employment growth in components may be the result of deeper levels of localisation or industrialisation, more extensive export of components and/or more labour-intensive products being made. We need to investigate this a little bit more.

IDC R4 billion vs 13 000 jobs created? IDC investment and jobs: are we happy? Is it a reflection of what we would like to see?
The Minister highlighted that of the 13 176 jobs, 7 835 (59.5%) are new jobs and 5 341 (40.5%) are jobs saved. 40% are car assembly jobs and 60% are component jobs. All of these investments have to be repaid, and some of them have already been repaid. For the IDC, the challenge is that they have to identify projects that will repay the money, because the state has not put money into the IDC, since 1994. When you invest, not every projects will succeed, so it is a careful balancing story with the IDC. EDD puts a lot of pressure on the IDC in terms job creation and investing in projects that will yield a great job return. We must encourage the IDC positively and not give it a mandate to invest recklessly. 

The most expensive sector for IDC funding per job created is the basic and specialist chemicals sector, which costs R4 220 984 per job. The investment in this sector is essential because the benefit trickles down to other key players in the economy which then creates jobs. The cheapest is the Agro-processing sector which cost R207 631 per job, clothing and textile, and light and manufacturing are also cheaper and these are the perfect spots for investment because they yield large employment returns. These numbers include jobs saved and created.

What role is there for labour market flexibility to enhance investment?
The Minister stated that policy-makers often refer to a range of different issues when addressing labour market flexibility which includes, provisions on hiring and firing of workers and how easy is it to hire and fire workers; wages and conditions of employment; how easy is it to manage the workplace (management of labour within a workplace); are workers able to quickly shift and change as production and technology changes; and rights and procedures for industrial actions. Trade unions often say that the labour market in the country is too flexible and there are no necessity tests in the labour market because it is too easy retrench based on economic tests. Employers may take a different view and say that the labour market is not flexible because it is not easy to dismiss someone. Small businesses are disadvantaged – there are too many strikes and wage levels in some sectors retard investment. Government views are guided by the law, the law is ultimately built on the Constitution, and in the law we try to promote less adversarial processes relating to conciliation and arbitration on dismissals. So instead of bringing in lawyers, it is important to allow the conciliation and arbitration processes to take place and reach settlements. He noted the prevalence of labour-broking in the economy and the provisions in the law to address these. There are also flexible arrangements in certain collective bargaining agreements, where unions and employers agree on wage differentiations, and there procedures for exemption from national bargaining council wage agreements.

Impact of the National Minimum Wage on the economy and jobs?
The Minister said that SA does not have a national minimum wage currently, but sector minimum wages are set in two different ways which include sectoral determinations based on the advice of the Employment Conditions Commission (a body that has business and labour on it and some independent experts); and secondly through bargaining council agreements based on settlements between business and labour in a sector that is extended to all sector employees and companies. 71% of wages are set without the involvement of organised labour.

The relationship between wages and jobs is complex and research across the world has tracked the impact of wages on levels of employment. Wages is a determinant of costs in a company and can drive costs up or down. Therefore, high wages affect prices and competitiveness of products which can result in loss of market share and thus the loss of jobs as well as the replacement of people with technology. Wages is a driver of aggregate demand in any economy, and higher wages can help to expand demand, create new investment opportunities and create more jobs. A national minimum wage set at a high level can hurt the economy.

Taking into account the NGP mid-term report, will we reach the 2020 jobs target? Should this NGP target be revised?
The Minister said we made the point that the public target became 11 million by 2030, and now that is the target that we have set in our policies. By December 2015, job performance was broadly on target with both the NGP and the new NDP targets, since job growth is not linear and can be expected to expand faster towards the end of a target period. However, in the past six months the effects of the slump on commodity prices, especially the price of iron ore which affects demand for SA products as well as the severe drought has contributed to sharp job losses. So currently, only 1.9 million jobs have been created since the NGP was adopted, which is 38% of the five million target. There are no adjustments to targets that are currently being planned though the effect of significant developments outside policy-maker controls may impact on the date when the five million new jobs will be reached. So it will depend on the speed and extent of recovery of the economy. If the economy quickly recovers from the drought we are expecting a boost, and the rise in prices of minerals.

Can we redirect 10% of the fines on cartels to fund education?
The Minister stated that monies paid by companies as fines to the Competition authorities go into the National Revenue Fund, which enables the fiscus to finance social programmes including the additional allocations to higher education. It is important to note that some of the competition settlements have specific education or training investment components. For example, with the AFGRI merger, the company committed to contribute R60 million to train small scale farmers at the end of December 2015, 155 farmers were trained at a cost of R26.6 billion.

What will be the effect on the economy of the current higher education crisis?
The Minister said that there are two key impacts to be monitored if the education crisis is not resolved and large numbers of student do not write exams. The effect of this will be the loss of all or part of the expected 185 000 new graduates in the economy which will deprive the economy of critical skills. The limited spaces in universities may mean that school-leavers who cannot find places at universities or those who drop out of university enter the labour market looking for work. However, without adequate skills, many will not find work which consequently will increase the rate of unemployment.

What trade do we conduct with Angola?
The Minister stated that South Africa’s total trade with Angola amounted to R23 billion in 2015, but we were buying more than we were selling to Angola. Therefore, we ran a trade deficit of R8 billion. Some other countries in the continent that we’ve run a trade deficit with are Nigeria with a trade deficit of R50 billion, Equatorial Guinea R2 billion, and Guinea R1 billion. The biggest import from Angola is crude petroleum oil, essentially the story line is just oil, but South Africa sells a variety of products to Angola, but not all of what we sell is necessarily made in the country. For example, cell phones we mostly import from China and re-export them to Angola.

What is the status on the soya-bean factory in Standerton? Is it importing soya-beans? Do we know the number of jobs currently created at the plant and sector?
The Minister stated that in the period since the adoption of the NGP, South Africa has massively expanded its soya-crushing plant capacity, with large new investments and more job creation. However, new agricultural production has not kept up with processing capacity and a growing volume of soya beans are being imported to be processed in the country. In addition, due to the drought but not entirely attributable to it, evidence shows that it is beyond that as the country just needs to get its agriculture right. It is important to note the following key indicators: jobs in soya-processing increased by an estimated 4 000; local production capacity has doubled to 1.8 million per annum; imports of raw materials is higher; and imports of finished goods are 433 million tons of oil cake and 174 million tons of soya oil.

In addition, the Minister highlighted that the country has nine soya crushing plants with a capacity to crush 1.8 million tons per year. Since 2013, three new plants to crush soya beans were opened including the Standerton Oil Mills in Mpumalanga which created 130 direct jobs and 2 000 to 3 000 farming and trucking jobs; the Russell Stone Plant in Bronkhorstspruit also in Mpumalanga resulted in the creation of 47 direct jobs and 200 direct jobs in refining and bottling, with farming and truck jobs estimated at 1 000; and the VK in Villiers in the Free State with 40 people employed at the plant. The Wilmar in Randfontein, Majesty in Krugersdorp and Nedan in Limpopo plants have been upgraded. Whilst the Willowton in Isando, Drake Oils in Winterton and Gauteng Oil Mills in Johannesburg are aging.

Further, the country increased capacity to crush an extra 900 thousand tons of soya. If all the plants run at 80% capacity, we will need 1.4 million metric tons of soya-bean crop, and importantly, in 2015 SA produced 1 070 000 metric tons which was the highest ever soya-bean crop in SA. So more crushing means more opportunity to grow soya and creates opportunities for small black farmers. To boost soya production, EDD and the Department of Agriculture, Fisheries and Forestry are working together in Mpumalanga to identify black small-scale farmers. Progress has been slow but it will be stepped up. There is an opportunity now to expand soya production in SA as a feedstock for the new capacity created. Mpumalanga is now becoming the producer in soya production and could potentially be so in the continent if it is given sufficient funding and efforts.

What’s the progress in finding partners for SCAW Metals?
The Minister stated that Scaw is an integrated and diverse steel producer making products used in mining, infrastructure, construction and agriculture in SA and the rest of the world. There is potential for localisation with Scaw, because Scaw supplies the rail, power and construction sectors and has potential to contribute to local content for SOEs such as Transnet and Eskom. The IDC holds 74% equity in Scaw metals, so moving forward the IDC intends to sell part of its equity to strategic equity partners which have the capability to turnaround Scaw’s operating performance, provide sound technical expertise, improved technology, provide alternative markets, and have financial strength. Initially IDC preferred a single strategic equity partner (SEP), but Scaw is diverse and there are a limited number of SEPs with a similar profile and set of competencies to buy into Scaw. So IDC is restructuring Scaw into stand-alone companies that SEPs can invest into and has appointed experts to assist in order to find strategic equity partners. Now, as it stands, the experts employed are currently evaluating deals with potential partners and potential SEPs have submitted indicative offers to invest in specific divisions of Scaw.

Jobs in the film industry, plans and details on Cape Town and Johannesburg film studios, and prospects of opening a Durban studio and also is local artistic talent being developed?
The Minister said that a report will be included in the EDD Quarter 2 Report and will be presented to the Committee. The report will contain details on the total investment in the film industry by IDC and DTI, details on the Cape Town Film Studio, the Sky Rink Film Studio in Johannesburg which has been opened recently, film making in Durban as well as details on local production and local talent. This information is being kept for the term two report and if the Committee can hold steady, it will be furnished soon in that report.

Will youth and skills accords have their own reviews of progress; has the 2009 Framework Agreement helped SA and will there be a review of effectiveness?
The Minister said with regards to the Youth Employment Accord, the review of progress will be completed in the fourth quarter and presented to the Committee. On the Skills Accords, the review was planned for 2017/18 but will be brought forward to the fourth quarter of 2016/17 as well, in light of the higher education crisis as well as the interest of the Committee. As for the Framework Agreement, it assisted SA to emerge from the recession and mitigated the impact of the recession on workers and the poor. A review of the effectiveness will be completed in either the fourth quarter or the first quarter of 2017/18.

Dr M Cardo (DA) asked if the Minister would answer the question raised in the media reports this morning which said that IDC has given an undertaking to FutureGrowth to publish in future reports the full disclosure of all the loans given. Yesterday FutureGrowth announced that it will resume lending to the IDC after it taken the review on internal governance. The Minister of Finance announced in his MTBPS speech about the proposed R45 billion to be spent on promoting industrialisation, economic transformation and sustainable resource management over the MTEF (Medium Term Expenditure Framework). He asked if the Minister could provide an indication of where the bigger chunks of that money will be channelled to. Thirdly, the Minister announced the implementation of the Agri-Parks initiative – what is EDD’s participation in that?

Mr P Atkinson (DA) stated that the renewable energy programme, as already mentioned, is very capital hungry and has the lowest job creation return, and perhaps it could also be said that SA has one of the best renewable energy programmes in the world. He asked if the IDC has had a good return on its investment in this sector. Secondly, with regards to Tourism, more encouragement needs to take place about the Eastern Cape, because tourists are pouring into Cape Town but very few actually visit the Eastern Cape, probably because the infrastructure is not sufficiently developed to attract tourists there. It might be something that can be looked into in the future by EDD to build infrastructure that will give the Eastern Cape tourist attraction. 

Ms C Matsimbi (ANC) asked about the progress of the Moloto Corridor. She drives past the area when commuting to and from her abode, but she does not see any progress happening in that area.

Ms D Rantho (ANC) asked about the N2 Wild Coast route, and if the Minister can share some light on it. Secondly, she asked if EDD is looking into technologies that can store the oversupply of energy in case the country faces a period of load shedding.

The Chairperson asked where the country would be if the Joint Initiative on Priority Skills Acquisition (JIPSA) initiative had continued. If one looks at the purposes of JIPSA as of 2006 and look at where the country is today in terms of production thus far and the demand of the economy as far as skills are concerned. What would the Minister say are the failures of JIPSA. It can be said that some of the work that went into the NGP may have come from JIPSA as far as the development of skills is concerned, so what are the benefits that have been acquired so far as a result of new policy or the policy shift regarding skills acquisition. And what are the lessons learnt from the JIPSA policy that have now been implemented into the NGP.
In response, the Minister stated that the IDC board decision on the disclosure of loans is not something that is specifically done for FutureGrowth. One of the challenges put to the IDC board is to ensure that governance is enhanced and deepened. It was recognised that you can get all your hard economic issues right but if there is no governance and implementation framework, then you will not be building the modern and advanced economy that is meant to be built. So the IDC board has been looking at how to ensure that there is enhanced oversight and governance of the decisions that IDC makes and it is in that context that the board has made this decision. The Minister said he will give some thought to the media statement report and comments will be furnished in due course. 

On the MTBPS, the envelope of the R45 billion is both to enhance the existing programmes in government and what the Minister of Finance termed as re-igniting growth and find ways to grow the economy more. Minister Patel said that in the second quarter report more indication will be provided on this. On Agri-parks, EDD invited the DRDLR (Department of Rural Development and Land Reform) to be part of the governance arrangement of the Agri-Parks and has encouraged the IDC to take part as well, because these parks are economic hubs. EDD has also encouraged private investors to take part in the initiative alongside EDD. For example, when AB InBev’s agreement was reached with EDD on the merger with SAB Miller, a provision proposed by EDD in the agreement was that AB InBev will work within the Agri-parks framework, meaning that they will find ways to bring in commercially driven projects into the framework that is being created. The key here is not to create an Agri-park model that is essentially a public sector project but has space and openings for processes to come in. This initiative will ensure that small scale farmers are provided with the opportunity to have access to the market. Agri-parks have been identified in each of the nine provinces and EDD is part of the project and working with DRDLR to ensure that the infrastructure is created for small scale farmers and those located in the rural areas.

On the renewable energy projects, the life cycle of the returns is quite long and so the IDC’s return horizon will match that of the project but the return is suspected to be in dividend form. If so, it will influence the capital invested into the project. It is important to note that it is actually still quite early to determine the value of the IDC returns in the renewable energy sector, given that the projects have a long life cycle. Some projects require deep capital investment over its life cycle and the return will be spread out over the life cycle of the project, but some of the projects require immediate capital and may start paying out returns as soon as the completed projects start bearing some profitable fruits.

On tourism, the relevance of it will be provided fully in the EDD Quarter 2 Report. What is important is identifying market opportunity with the IDC. However, the biggest challenge is that the infrastructure is not well developed to attract investments in the Eastern Cape, so it would be risky because the investment would be made on a judgement call. The IDC’s resources are limited, there is a capital base but it is sunk in investments. EDD is currently engaging with the Department of Tourism on this to lift the IDC’s rate of investment but it must be done in a sustainable manner.

On Moloto Corridor, it refers to the route between Mpumalanga and essentially Gauteng and going a little bit into Limpopo which currently supports thousands of workers everyday on unsafe roads. The Moloto Corridor Development has a number of development elements to it. The first one is to improve the road itself because it is not safe, but one of the biggest challenges was money. However, that has now been solved and the Department of Transport has set aside a budget to fix the roads. We are confident that if there are no legal challenges, construction will take place in the next financial year. Secondly, EDD aims to link the villages to the main road to provide better access roads and that is still a work in progress. The main issue now is trying to make the main road safer and a lot of money has already been made available for that. Thirdly, is looking at the viability of rail to move people more safely and quickly between the two centres. However, it must not be designed simply to move people, but create an opportunity for commercial activity. We have to unlock more economic opportunity in Mpumalanga with agro-processing, so there has to be a freight and passenger rail system to be able to move the goods and people, and Prasa has done some work on this component. Fourthly, we want to stimulate economic activity in that corridor. The money has been authorised and the construction processes will commence in the next 12 months.

On the N2 Wild Coast route, it consists of two components. Firstly, there are two new large bridges and secondly, the re-routing of the road itself that will shorten the route from East London to Durban. In the design we needed to ensure that there is access from rural producers to the main markets. The aim is not to only increase the traffic but to give the rural poor farmers and people access to markets. The big challenge, as with the Moloto road component, was finance. The project probably cost about R7 to R8 billion at the time it was costed years ago but now it might a little higher due to inflationary adjustments, but we have been able to get to the point where there is agreement about the overall strategy for the N2 – which led the Minister of Finance making the statement in the MTBPS. The EDD is currently working with Sanral and it will finance a portion of the cost in the balance sheet and the fiscus will cover the rest.

At the moment there is no knowledge regarding storage technology for electricity on an industrial scale. The closest we can come to that are small batteries, only because there is more demand in this space. With big industrial scale in the short to medium-term we are trying to find a way to store energy for a few hours at a time. As energy is produced, it needs to be fed immediately to the national grid. I it is not used, it is lost because it is not a storable product. This poses a challenge, because the sun shines at a time when energy requirements are lower because when the sun sets, that is when you need energy.  There is a technology called concentrated solar power (CSP) which gives one the opportunity to store the energy for a period of more than ten to 12 hours. In SA there is one plant that can store energy only up to three hours. The longer the storage period, the more expensive it is to store, so one has to do a cost benefit analysis and energy prices become extremely expensive which makes it a disincentive for investment and a burden to citizens. There is no technology to save energy for longer periods of time; the technology available only stores energy for a few hours.  There is not an economically viable means to store industrial energy at the moment.

JIPSA is a joint initiative on priority skills acquisition which was a project launched in the 2000s and it was quite an important project because the economy was experiencing some problems, as it was slowed down by the shortage of skills. So JIPSA was a presidential initiative that was quickly put together and it looked at how the problem can be addressed. In early 2010 JIPSA prepared its report when EDD started to work on the NGP. EDD looked at the JIPSA example and perused the JIPSA report to look at what areas it can take and put into the NGP. The first thing it took was re-balancing the education system to produce more artisans and engineers. In the NGP we have bedded down the focus of JIPSA on artisan and engineering training. We have put some numbers up and we used the JIPSA numbers as well. The second item that came out of JIPSA was the importance of partnerships between business, labour and government as well as the importance of business taking ownership of training and not just leaving it up to government alone to do. EDD then did the Skills Accord and a couple of initiatives were launched by businesses and some work was put into getting the SETAs to work differently. Some of the work in the Skills Accord will reveal how well that has worked. The third important item that came out of JIPSA was to ensure that universities and colleges (TVET) are able to produce more skills for the economy. We have done well in that regard as compared to the start of the NGP. However, we must start with quantity because of the young people dropping out at university and that is where a lot more focus must be. There must be a move towards quality, because numbers alone are not going to solve the problem if too many young people drop out of university. We have to ensure that we put together some support structures. JIPSA was very helpful; there were a number of useful lessons that were incorporated into the NGP and through that into the work of the Department of Higher Education and Training as well.

On-the-job training is where our conversation with business is focusing now, we are talking to businesses to ensure that they are active partners in this. Young people need on-the-job training as part of their education. One cannot learn to be an electrician just by learning in the classroom, there has to be a training component as well. There has been a poor quality of graduates because there is a lack of on-the-job training. Secondly, lecturers must now have access to the new technologies, because they go and teach the students the old technology. Companies need to partner with TVET colleges to ensure that they provide some technology in the TVET colleges and then ensure that they contribute towards providing opportunities for those students to go work for them. So these are some of the crucial conversations that EDD is engaging on.

The Chairperson thanked the Minister and his team for the effort put into the responses.

The meeting was adjourned.


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